What You Can Learn From Shareholder Letters
A less-than-candid letter to shareholders could be a red flag.

Laura Rittenhouse is president of Rittenhouse Rankings, which ranks annual CEO letters to shareholders for candor. She’s the author of an upcoming book, Investing Between the Lines.
Why read a CEO’s letter to shareholders? The annual shareholder letter helps you decide whether a company’s financial statements are trustworthy. The letters offer an insider’s view of the corporate culture, and the quality of that culture influences decisions made throughout a company—such as when to count incoming and outgoing cash or how to book expenses. If the culture is one of honesty and trust, employees will likely be more forthright in their accounting judgments and the financial statements are more likely to be trusted. I’ve found a strong link between corporate candor and stock performance.
How can you determine all that from the letter? First, it’s important to know whether the CEO authored the letter. Then you must judge how candid the comments are. I award points for every mention of cash—cash flow, cash conversion rate, cash from operations—because that tells you something specific about the business. I deduct points for clichés—“looking forward to a bright future,” for example. That tells you absolutely nothing. After reading the letter, you should feel as though you’ve met with the CEO, who should have offered a balanced disclosure of the company’s successes and its problems.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.

Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Why are Berkshire Hathaway CEO Warren Buffett’s letters the gold standard? You can tell he wrote the letter. It’s personal. It’s specific. He talks about problems and takes responsibility for them—something most other CEOs don’t do. Buffett promises investors that he’ll communicate candidly because, he’s said, a CEO who misleads in public will eventually mislead himself in private.
What are some red flags? If you read the past few shareholder letters of MF Global, you’d have noticed that the CEO of the company changed three times in three years. Each year the letter reported on improving sales and net income, but failed to disclose per-share losses. That’s an unbalanced disclosure. If a letter reads like public-relations spin, it could indicate that the company is not prepared to communicate honestly with investors.
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

-
The 'Vinyl Rule' of Retirement: Plan for Two Sides in Your Next Act
Because “Life is what happens when you’re busy making other plans.”
-
Five Destinations for Active and Chill Travelers Alike
Whether you reach for a paddleboard or a lounge chair, find your groove in a location that offers something for both kinds of travelers.
-
9 Warren Buffett Quotes for Investors to Live By
Warren Buffett transformed Berkshire Hathaway from a struggling textile firm to a sprawling conglomerate and investment vehicle. Here's how he did it.
-
A Timeline of Warren Buffett's Life and Berkshire Hathaway
Buffett was the face of Berkshire Hathaway for 60 years. Here's a timeline of how he built the sprawling holding company and its outperforming equity portfolio.
-
Berkshire Buys the Dip on UnitedHealth Group Stock. Should You?
Buffett & Co. picked up UnitedHealth stock on the cheap, with the embattled blue chip one of the newest holdings in the Berkshire Hathaway equity portfolio.
-
What Set Warren Buffett Apart
As Warren Buffett prepares for retirement, we reflect on what we've learned from his 60 years of leadership at Berkshire Hathaway.
-
July CPI Report Ignites a Risk-On Rally: Stock Market Today
Market participants price out worst-case scenarios for tariffs and inflation and will now turn their attention to employment and growth.
-
Value vs Growth Investing Isn't So Simple
The difference between growth and value stocks isn't black and white.
-
If You'd Put $1,000 Into Berkshire Hathaway Stock 20 Years Ago, Here's What You'd Have Today
Berkshire Hathaway is a long-time market beater, but the easy money in BRK.B has already been made.
-
I'm an Investing Expert: This Is How You Can Invest Like Warren Buffett
Buffett just invested $15 billion in oil and gas, and you can leverage the same strategy in your IRA to potentially generate 8% to 12% quarterly cash flow while taking advantage of tax benefits that are unavailable in any other investment class.